The Pew Charitable Trust released a report last week detailing the impact of the financial crisis and specifically the damage to Generation X defined as those born between 1966 and 1975.

The bad news

• The typical Gen Xer now in his or her late 30s to late 40s saw their net worth drop by a larger proportion than older Americans during the crisis.
• Generation X suffered losses amounting to 45% of median net worth between 2007 and 2010.
• Gen Xers are now less prepared for retirement than the post-World War II boomer generation.
• Gen Xers are on track to replace only 50% of their pre-retirement income if they stop working at age 65.  Boomers (borned 1946-1955) are set to replace 82% of income while Late Boomers (1956-1965) are tracking to replace 59%.

What’s working against Generation X?

• Gen X will bear the full brunt of the decision made decades ago to raise the age at which beneficiaries can get full Social Security benefits to 67 up from 65.
• Life expectancy is rising meaning retirement assets will have to last longer.
• Most Gen Xers will have to rely on defined-contribution plans (e.g., 401(k)s), instead of traditional pension plans.

What do Gen Xers need to do?

• Gen Xers are facing a genuine possibility of downward mobility, if they don’t change course.
• Generation X needs to take steps such as saving more, investing more wisely, and borrowing less to maintain their living standard in retirement.
• There’s additional reason to be optimistic because many Gen Xers may have been fairing better in the last few years following the 2010 cutoff of the Pew study.
• Home prices and the stock market have been rebounding in recent years.
• As long as Gen Xers didn’t sell stock and they continued to contribute to their retirement accounts through the recession they will be in a reasonably good position.
• That’s a prudent lesson to remember when inevitable occurs and we face another recession.

Source: Wall Street Journal

The average age at which U.S. retirees say they actually retired is now at 61, up from 57 in the early 1990s.

Currently, 37% of nonretired Americans say they expect to retire after age 65, 26% at age 65, and 26% before age 65.

Some key observations:

• The average retirement age has crept up by four years over the past two decades, from 57 in 1991 to the current 61

• The average nonretired American currently expects to retire at age 66, up from 60 in 1995.

• More than half of nonretirees aged 58 to 64 expect to retire after age 65, compared with 36% of nonretirees aged 50 to 57, 38% of those between 30 and 49, and just 26% of those younger than 30.

• The average age that current U.S. retirees said they retired is now 61, compared with 59 in 2003 and 57 in 1993.

• Gallup has found that Americans aged 60 to 69 who work have slightly better emotional health than those who do not work, and this relationship is stronger for Americans in fair or poor health.

Gallup has additional interesting interpretation and discussion at this link.

Source: Gallup

Here’s an important reminder if you have an individual retirement account (IRA) or are considering opening an IRA.

2012 contributions to your IRA accounts can still be made up through April 15, 2013.

IRA Contribution Limits for 2012*

Traditional/IRA Rollover: $5,000 ($6,000 if you are 50 years old or older)
Roth IRA: $5,000 ($6,000 if you are 50 years old or older)
SIMPLE IRA: $11,500 ($14,000 if you are 50 years old or older)
SEP IRA: $50,000

*Note: The maximum contribution limit is affected by your taxable compensation for the year. Refer to IRS Publication 590 for full details.

#1 Not paying for financial guidance
People who have no problem paying for the services of an accountant or lawyer often balk at the prospect of cutting a check to pay for investment advice. Instead, they rely on “free” help from retirement advisers they meet at banks, brokerage firms and retirement seminars.

#2 Investing in something you don’t understand
If your financial adviser recommends an investment you can’t explain to someone else, just say no. It will likely carry steep fees (to pay steep commissions) and be less wonderful than it is touted to be.

#3 Supporting your adult children
You might be tempted to help them with a down payment or living expenses, but unless you are certain that you have enough to ensure your own survival, don’t do it.

#4 Low-balling elder-care costs
When planning for retirement, few people think about how much they might end up spending to support elderly parents. Inflation and longevity could erase the purchasing power of the children’s pension and savings, leaving them with too little to live on, let alone cover medical expenses.

#5 Underestimating how much you will need
It is easy to underestimate the impact of inflation and longevity, or the cost of health care, supporting family members or caring for a spouse with Alzheimer’s disease or cancer.

Source: Wall Street Journal